HomeNewsShould You Buy a Home if Mortgage Rates Fall Below 6%?

Should You Buy a Home if Mortgage Rates Fall Below 6%?

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A fair number of people who wish to buy homes today can’t. And a big reason boils down to the fact that mortgage loans are expensive to sign.

As of this writing, the average interest rate on a 30-year mortgage is 6.63%, per Freddie Mac. And as of December 2023, the median existing home sale price was $382,600, as per the National Association of Realtors. If you were to put a 20% down payment ($76,520) on a home with that purchase price, at 6.63% for a 30-year loan, you’d be looking at a monthly payment to your mortgage lender of $1,960 for principal and interest.

You may be waiting for mortgage rates to fall before making an offer on a home. And there’s a chance that at some point this year, rates for a 30-year loan will drop below the 6% mark.

How come? The Federal Reserve has paused its interest rate hikes for multiple months in a row. And the central bank has signaled that rate cuts are likely in store for 2024.

Once the Fed lowers its benchmark interest rate, borrowing costs for consumers could come down across the board. So while there’s no guarantee that home buyers will be looking at sub-6% mortgages this year, it’s possible.

But even if rates get to that point, you don’t necessarily want to rush into homeownership. Instead, you’ll need to crunch the numbers to make sure you can swing a home purchase.

Home prices may not come down

Though there’s a pretty good chance that mortgage rates will come down throughout 2024, that doesn’t automatically mean that home prices will shrink. And even if borrowing gets less expensive, elevated home prices might still prevent a lot of buyers from making a move.

In fact, if mortgage rates come down this year, home prices might actually rise. Lower borrowing rates might spark an uptick in buyer demand. And if more buyers start clamoring for homes, sellers will be in a strong position to raise their asking prices.

You’ll need to do some serious math before making an offer

Regardless of how much mortgage rates drop this year and where home prices stand, it’s always important to do some calculations to see how much house you can afford. As a general rule, you really don’t want to spend more than 30% of your take-home pay on housing. Going above that threshold could put you at risk of falling behind on not just your mortgage or home-related costs, but your bills on a whole.

As such, you may or may not be able to afford a home once mortgage rates fall below 6%. The answer to that question will depend on the cost of the home you’re looking at and the amount of money you have available to put down. It’ll also hinge on the additional costs of owning that home, such as property taxes and homeowners insurance.

Similarly, it may be that you can afford a home even if mortgage rates remain above the 6% mark. So rather than fixate on a single benchmark with regard to mortgage rates, instead, focus on the big picture. If you can afford a home whose monthly costs don’t exceed 30% of your pay, you may be in a strong position to buy, no matter how much your mortgage lender is charging you.

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